This Under-Appreciated Automotive Stock is Extremely Durable – The Motley Fool
With current market volatility, investors seeking companies with a demonstrated history of resiliency might find that O’Reilly Automotive (ORLY 0.29%) fits the bill. In this clip from “The Rank” on Motley Fool Live, recorded on June 13, Motley Fool contributor Tyler Crowe discusses how O’Reilly Automotive has remained a durable business and continued to demonstrate resiliency over the years.
Tyler Crowe: O’Reilly also has a little bit of a do-it-for-you business, so it’s a little bit more repair-oriented. You can actually go in and have repairs done on your car rather than just a simple selling and distribution of parts. If we want to talk about free cash flow, it doesn’t pay a dividend, but instead, it has been one of those companies that just is like, I’m going to buy back all the stock as much as possible and then we just double check because I have it right in front of me. Over the past 10 years, O’Reilly Automotive has reduced its shares outstanding by 47%. Every share, it’s about half of them are compared to what we were 10 years ago. It gives you an idea of what they have been doing with that free cash flow because it’s not a capital. It’s not super capital. It intends to grow the business like it requires a lot of working capital because your inventories of parts and things like that, but you’re not buying data centers for net or anything or doing a lot of ground-up construction. You’re leasing from a strip mall and stocking of car parts. You’re not doing a long development pipeline or anything like that. Here’s one of the things that I found very attractive, even though it’s not the cheapest stock in the world right now, I believe we’ll get up the trading in a second, but here’s the thing that I liked about it the most, is that right now at its current price, is trading for a free cash flow yield, which is its annual free cash flow dividend by its market cap. It has a free cash flow yield of 6.4%. Just to give some comparisons, PayPal (PYPL 2.35%), even after its 75% drop, has a free cash flow yield of 5.7%, A.O. Smith (AOS -0.90%) 5.5%. Just to come back to its more traditional valuations, O’Reilly has a P ratio of 19, so not super expensive. I guess we’ll call it relatively cheap relative to the market. But overall, I think there’s a lot of value in what they do and it’s a very durable business.